3/29/2007 @ 6:00PM

The Cost Of Corruption

Every year, the World Economic Forum in Geneva, Switzerland, the same group that holds the high-powered annual meeting in Davos, publishes a Global Competitiveness Report. The 2006-2007 edition covers 125 countries and encompasses 98% of world gross domestic product. Our definition of competitiveness is we are looking at the factors and policies that are driving productivity,” says Dr. Jennifer Blanke, senior economist at the World Economic Forum.

The Global Competitiveness Report ranks countries both on hard economic data–such as gross domestic product, inflation, government debt, country credit rating and infant mortality–and on survey opinions from over 11,000 chief executives and other high-ranking executives in 125 countries. The World Economic Forum divides its report into nine core sections, which it calls “pillars,” representing measurements of different aspects of an economy’s competitiveness.

The most fascinating pillar is what the organization politely, labels “institutions.” The 29 survey items in this part of the report provide a window into the perceived level of bribery, political corruption, business costs of crime, violence, ethical behavior of companies and other measures of friction that can impede the flow of commerce.

Using a scale of 1 to 7, with 7 being the best score, the World Economic Forum ranks countries on each item in its survey. In institutions, Iceland comes in first place among all countries on nine of the 29 items. Singapore and Finland top all remaining countries, with five and four first-place rankings, respectively. The Scandinavian countries of Norway, Sweden and Denmark all have numerous rankings within the top 10 positions.

The country with the best aggregate score in institutions is Finland, followed by Denmark and Iceland. One notable loser: Venezuela. That socialist country has the dubious distinction of ranking in last place, 125th, on six of the 29 institution factors. Venezuela is also last in its aggregate institutions score.

What about the U.S? In short, there is room for improvement in the institutions section. Businessmen give America its highest ranking, 10th place, for decentralized planning, which means they think that state and local governments control most important decisions pertaining to their businesses, not the federal government. Overall, the U.S. rates in the top quartile in just 14 of the 29 institution items. The worst rankings for the U.S.: 111 on the cost of terrorism to business and 102 on the impact of legal contributions to political parties.

The U.S. also fell out of first place in the overall 2006-2007 World Competitiveness rankings and now holds sixth place, with a composite score of 5.61 out of a possible 7. Switzerland took the top position, followed by Finland, Sweden, Denmark and Singapore. At the very bottom: Angola.

As for Venezuela, its oil money helps it earn somewhat better rankings in the “macroeconomy” and “health and primary education” sections of the Competitiveness Report, giving the country an overall rank of 88 out of 125 countries. Yet it still is the lowest-ranked country among nations with Global 2000 companies.